How much time and interest you can save from offsetting your home loan
An offset loan is a lending arrangement between you and the lender in which a borrower opens a savings account with the lender. Instead of receiving interest on the savings account like a term deposit, the lender reduces your interest on your home loan based on the net balance of the loan less the savings account.
How does an offset account work for you?
An offset account reduces your overall interest payable on your home loan and is calculated as follows:
Interest Calculated: (Outstanding loan – Balance in the Offset Account) x Interest Rate
Which is the net difference between your outstanding loan balance and the balance in your offset account multiply by your current interest rate.
If your current loan has an outstanding balance of $500,000 and you had $50,000 in an 100% offset account, you would only pay interest on $450,000. This means your regular repayment will pay more in principal and less in interest thereby reducing your outstanding balance faster. The offset account not only help you save on interest but encourage you to build up your savings in the offset account.
How to use the offset mortgage calculator?
All you have to do is enter the details regarding your current home loan or the home loan you wish to apply for in the home loan offset calculator. The results will tell you the following:
- Your monthly repayments
- The overall interest saved and;
- How much time you will take off on your loan term.
- Your revised time on your loan term
This will help demonstrate the benefits of an offset account when comparing to a normal home loan without an offset account.
To use the offset mortgage calculator, you’ll need to enter in the following details:
- Loan amount
The loan amount refers to the amount of money you have borrowed or the outstanding loan balance
- Interest rate
The interest rate which can be either fixed or variable is the interest rate at which you repay the loan
- Loan Term
This is referring to the amount of time you have to repay the loan with usual loan term ranging from 25 to 30 years
- Repayment frequency
Refers to how often you will be making your repayments and is typically either monthly, fortnightly or weekly.
- Offset account balance
The offset account balance is the amount you have in your offset account
The benefit of the offset account is compounded i.e. the longer you leave your money in the mortgage offset account the more interest you save and the faster you will repay your home loan. In other words, your money is working harder and smarter for you.
If you would like a more professional mortgage advice regarding your scenario, you can speak to one of our mortgage specialists today.